Ruth's Blog: January 2010

What's best? Discount pricing, Premium Pricing, or Par pricing?

Sounds boring already, doesn't it?

But I'm going to KISS (keep it simple silly) and then I'll TELL you why at the end.

First, you need to understand there are 3 basic interest rate pricing structures:

Discount Pricing, where you prepay the interest of a loan upfront at closing (discount points). You have thus lowered your interest rate for the life of the loan.

Premium Pricing would be a rate higher than the market requires, allowing the estimated additional monthly interest to be a credit to the borrower at closing. Typically applied to offset mortgage closing costs.

Par Pricing is the exact interest rate set by the market - no discount paid, no premium credited back.

Summary: If you want to lower your closing costs, you can choose a higher interest rate.

If you want to lower your monthly payment, you can pay higher settlement charges.

You want KISS? Skip to the end! If you can handle more, look at this example:

The first option shown is the "par" rate. Take a look at the monthly payment, and the estimated settlement charges.

The middle example is a good option for the borrower who wants lower settlement charges, which is accomplished by increasing the interest rate, and therefore the monthly payment.

And the third example is a good option for the borrower who wants a lower monthly payment. This is accomplished by prepaying interest, called discounting the rate, resulting in paying discount points.

Notice the chart makes it easier for the buyer to identify which option is more appealing to them.

BUT here's where we can crunch it down to determine if the option is BEST for them:

The first option has the borrower bringing almost $2,000 more money to the closing table, to save $76.71 per month. So if you take the extra cost ($2000) and divide it by the savings ($76.71), you get the breakeven or approximately 26 months. That means, if the borrower is going to live in the house more than 26 months, it would be worth the extra $2,000 at closing to get the monthly savings by paying for the lower interest rate.

This should help take the smoke and mirrors out of picking what rate is right for you.

NOW I'm ready to TELL you why I'm sharing this with you...

This chart is on the third page of the new Good Faith Estimate of Closing Costs!

It's not REQUIRED to be filled out, but if you want to best explore your options ask your lender to do so.

Mortgage Rate Indicators for Denver

Interest rates can be extremely volatile based on the news from various sectors of the economy, such as unemployment, inflation, etc. So, when trying to decide whether or not to lock a loan, it's important to watch mortgage rate indicators which MIGHT give some direction. Notice I said "direction" not "guarantee", because there really is no one that knows for sure what the interest rates are going to do. If they did, they would own islands somewhere warm and be retired!

If you are interested in applying on line for a loan, go to www.MyLenderOfChoice.com.

Or call me at 720-489-0712.

Market Comment - Week of January 25th, 2010 Mortgage bond prices rose last week pushing mortgage interest rates lower. The bond market rallied following crumbling stocks as the DOW fell 213 points Thursday. Weekly jobless claims came in higher than expected causing unemployment fears to cast a shadow over the state of the economy. In a consumer based economy it is difficult for people to spend money without a job. The producer price index was mixed as the headline figure was higher than expected but the core was lower than expected. For the week interest rates fell by about 1/4 of a discount point. The Fed meeting Wednesday will be the most important event this week. The Treasury will continue the record auctions with 2-year notes on Tuesday, 5-year notes on Wednesday, and 7-year notes on Thursday. If foreign demand remains decent rates should hold near current levels. However, a drop in foreign demand will likely cause rates to head higher. Economic Factors Economic Indicator Release Date Time Consensus Estimate Analysis Existing Home Sales Monday, Jan. 25, 2010 Down 8.3% Low importance. An indication of mortgage credit demand. A significant decrease may lead to lower rates. Consumer Confidence Tuesday, Jan. 26, 2010 52.9 Important. An indication of consumers' willingness to spend. Weakness may lead to lower mortgage rates. New Home Sales Wednesday, Jan. 27, 2010 Up 1.9% Important. An indication of economic strength and credit demand. A decrease may lead to lower rates. Fed Meeting Adjourns Wednesday, Jan. 27, 2010 No rate adjustment Important. Few expect the Fed to change rates, but some volatility may surround the adjournment of this meeting. Durable Goods Orders Thursday, Jan. 28, 2010 Up 2.0% Important. An indication of the demand for "big ticket" items. Weakness may lead to lower rates. Q4 Advance GDP Friday, Jan. 29, 2010 Up 4.5% Very important. The aggregate measure of US economic production. Weakness may lead to lower rates. Q4 Employment Cost Index Friday, Jan. 29, 2010 Up 0.4% Very important. A measure of wage inflation. Weakness may lead to lower rates. U of Michigan Consumer Sentiment Friday, Jan. 29, 2010 73.0 Important. An indication of consumers' willingness to spend. Weakness may lead to lower mortgage rates. Fed Focus The United States central bank, the Federal Reserve, coordinates the borrowing and lending activities of federally chartered banks. The principal reason the Federal Reserve was created was to reduce severe financial crises. One way of accomplishing this goal is to control the amount of money that flows through the economy. By manipulating the US money supply, the Fed influences inflation, unemployment, and the level of US economic activity. The Fed has a variety of tools that it uses to control the money supply, but its chief policy tool is the manipulation of short-term interest rates. All eyes will be focused on the Federal Open Market Committee meeting Wednesday. No rate changes are expected. However, many analysts and traders believe rate hikes are on the horizon. Futures contracts show traders are pricing in a 77% chance the Fed will raise rates by November. Others argue those positions will be wrong because the economy isn't strong enough for the Fed to change rates. A cautious approach to float/lock decisions is prudent heading into the Fed meeting this week. Be prepared for potential market volatility.

WR Starkey Mortgage - A different kind of company...where people come first!

Ruth Vogt Business Development Manager (LMB100023827) 6025 South Quebec, Suite 110 Englewood, CO 80111  Work: 720-489-0712 Fax: 720-489-0273 Other: http://www.dora.state.co.us/real-estate/index.htm  rvogt@wrstarkey.com  www.MyLenderOfChoice.com

Before I explain that question, let me ask you this one: "How long have you been in the business?" Ever have someone ask you that? Here's my answer, and it will really make you think!

I was in the business before we had the Equal Credit Opportunity Act (ECOA). ECOA went into law in 1976, and protects against discrimination based on race, color, religion, national origin, sex or marital status, or age.

So, you ask???

Well, when I was first in this business, if I were taking a loan application from a married couple that were of child bearing age and they wanted her income to be taken into consideration, I would have to document their birth control procedures!!

Yep! That's right! A letter signed by the two of them certifying they did not intend to have children, why, and then explaining their form of birth control would sometimes suffice, but not always! Imagine having to ask THAT question at the face to face loan application (which a face to face was the only kind of loan application we could accept)! Remember, back then maternity leave was not protected by law. Thus, if the wife were to get pregnant, there would be no guarantee that she would get her job back. So job stability could not be established, disallowing the income from being taken into consideration.

And to think today we're all uptight about a new Good Faith Estimate and HUD!

"We've come a long way, baby!" (Do you know what advertisement that line was used in?)

This post is included in the brand new "Financing Friday" group, which we invite you to join.

Mortgage Rate Indicators for Denver

Wondering what interest rates for home purchases will be this week? No way to be certain, but watching the mortgage rate indicators is one way to get some idea of what to expect.

If you would like to be prequalified, you can fill out a secure online application at www.MyLenderOfChoice.com. Or call my office at 720-489-0712.

Market Comment - Week of January 18th, 2010 Mortgage bond prices rose last week pushing mortgage interest rates lower. The bond market rallied nicely Tuesday following moves by China to curb growth. Oil prices fell almost immediately providing a much-needed reprieve following the recent run up in prices tied to severe cold weather across the US. The consumer price index data showed tame inflation, which also helped rates improve. For the week interest rates fell by about 1/2 of a discount point. The inflation data Wednesday will be the most important economic release this week. Signs of stronger than expected inflation would not be good for mortgage interest rates. The bond market is closed Monday in honor of the Martin Luther King holiday. Interest rates may be volatile Tuesday as trading resumes following the extended holiday weekend. Economic Factors Economic Indicator Release Date Time Consensus Estimate Analysis Martin Luther King Day Monday, Jan. 18, 2010   Important. Shortened trading week may result in volatility when trading resumes Tuesday. Producer Price Index Wednesday, Jan. 20, 2010 Unchanged, Core up 0.2% Important. An indication of inflationary pressures at the producer level. Weaker figures may lead to lower rates. Housing Starts Wednesday, Jan. 20, 2010 Up 1.0% Important. A measure of housing sector strength. Weakness may lead to lower rates. Weekly Jobless Claims Thursday, Jan. 21, 2010 445k Moderately Important. An indication of employment. Higher figures may result in lower rates. Leading Economic Indicators Thursday, Jan. 21, 2010 Up 0.5% Important. An indication of future economic activity. Weakness may lead to lower rates. Philadelphia Fed Survey Thursday, Jan. 21, 2010 18.2 Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates. LEI The index of leading economic indicators (LEI) is a weighted average of eleven economic variables that "lead" the business cycle. It is constructed for forecasting future aggregate economic activity. The eleven variables that make up the LEI measure workers' hours, initial unemployment claims, new factory orders, vendor performance, contracts and orders for plant and equipment, new housing permits, changes in unfilled orders, prices of raw materials, stock prices, money supply and consumer expectations. Each of the variables that comprise the index has a tendency to predict (or lead) economic activity. For example, new orders for manufactured goods, new orders for plant and equipment, and new building permits are all direct measures of the amount of future production being planned for the economy. Analysts monitor the LEI in an effort to predict future economic growth. When the LEI report is up, mortgage market participants expect credit demand to increase and inflationary pressures to build. Thus, when the LEI report is rising, interest rates tend to rise as well. The LEI report is a valuable forecasting device that correctly predicts most economic turning points. The percentage change in the LEI is reported monthly and is an indication of the activity that will occur within the next three to six months. The LEI tends to turn down before peaks in the business cycle. Continuous declines are generally accepted as evidence that a recession continues. Nine of the eleven components that make up this index are known before the release of the report, so the index is easy for economists to predict. Thus, although this is important predictive data for market participants, surprises are not common with the release of this data.

WR Starkey Mortgage - A different kind of company...where people come first!

Ruth Vogt Business Development Manager (LMB100023827) 6025 South Quebec, Suite 110 Englewood, CO 80111  Work: 720-489-0712 Fax: 720-489-0273 Other: http://www.dora.state.co.us/real-estate/index.htm  rvogt@wrstarkey.com  www.MyLenderOfChoice.com

New Good Faith Estimate of Closing Costs

Sometimes the hardest part about having new forms is that, well, it's NEW! It's DIFFERENT! We have to create new scripts to EXPLAIN it so that our clients can UNDERSTAND it. But first... WE have to understand it.

So here are just a few points regarding the new Good Faith Estimate that I hope will help with that.

First, we have to recognize the old Good Faith Estimate was really an estimate focused on how much the BUYER needed to bring to closing and how much they would have to pay monthly.

Now, we have an estimate of closing costs related to the mortgage REGARDLESS of who pays! No credits offsetting, just a disclosure of the expenses. Let's do a simple down and dirty comparison of then vs now to help get my point across.

For the purpose of ease, we'll pretend we have an FHA loan with a sales price of $100,000.00. Here are the other details for my example:

1. The buyer is putting minimum down of 3.5%, or $3,500.
2. Buyer has put $1,000 earnest money down.
3. We'll pretend the total closing costs and prepaids are about $4,000 and the seller is going to pay them.
4. And of course, on an FHA loan we have upfront mortgage insurance of 1.75% off the base loan amount, or about $1,700, which is rolled into the loan.

The old Good Faith Estimate, which was created just for the buyer's information, the amount required for closing would show:

1. Closing costs and prepaids being paid by seller, which would show the credit for the buyer.
2. Mortgage insurance of $1,700 would be added to the mortgage, which would also be credited.
3. Leaving basically the down payment of $3,500, less the earnest money deposit, or $2,500.00

With the new Good Faith Estimate, there are no credits reflected. It is merely a reflection of ALL costs associated with the transaction regardless of who is paying them. Bottom line is going to look like this:

1. Closing costs of up to $4,000
2. Mortgage insurance of $1,700
3. Down payment of $3,500
4. NO CREDITS, so bottom line will be a total of the above, or $9,200.00.

The buyer isn't paying any more or any less. It's simply an explanation of all costs that need to be taken into consideration on that transaction.

Will this leave the buyer confused? Yes, UNLESS we redirect our attention to the residential loan application, known as the 1003! That form does, in fact, give a total monthly payment AND breaks down what amount the buyer will need for closing. Let me show you specifically where to look.

Page 4, Section VII:

Notice the credits given for seller paid fees

Earnest Money 

and MIP financed

Leaving what the Buyer needs for closing

And while we're looking at the 1003, we can also see the estimated TOTAL monthly payment on Page 2 of the application, Section V:

So, just change your scripts!

1. The GOOD FAITH ESTIMATE is a reflection of ALL costs regardless of who pays what.
2. For the total monthly payment and cash required at closing, look at the Residential Loan Application, referred to as the 1003, Sections V and VII.

Remember, your first time homebuyers have never seen the old GFE, so they don't know the difference. Don't dwell on the change, just focus on new scripts to help your buyer best process the information disclosed in the formats we are required by law to use.

Colorado Springs MLS

The real estate market is showing an improvement in Colorado Springs according to the MLS, or Multiple Listing Service. The MLS tracks the time a property is on the market before selling. The time on the market actually gives indication of whether we have a buyer's market or a seller's market. The article below gives current MLS statistics suggesting Colorado Springs properties are selling much faster than they were a year ago.

For additional information on the importance of working with someone that is qualified to accurately interpret MLS statistics, please click: MLS reports.

Mortgage Rate Indicators for Denver

Whether you are thinking about buying or selling your home, it's important to track mortgage rate indicators in order to have some idea which way the interest rates are moving. The mortgage rate indicators aren't ever absolutely "on the mark" with pointing an upward or downward movement. After all, that would take all the fun out of it! Seriously, anyone that suggests they KNOW with certainty what rates are going to do is much smarter than even the experts I've met in the business over the past thirty years. Mortgage rate indicators do just that - give an indication, not a guarantee.

For further discussion on rates, mortgage terms, or loan qualification requirements, please contact me.

Market Comment - Week of January 11th, 2010 Mortgage bond prices rose last week pushing mortgage interest rates lower. The bond market was buoyed by the announcement that US Treasury increased the credit lines of Fannie Mae and Freddie Mac a total of $400 billion. This was a signal to investors that those entities are "too big to fail" as viewed by the Treasury. We saw some weakness Thursday afternoon as retailers reported stronger than expected holiday sales. The employment report Friday was generally bond friendly. For the week interest rates fell by about 1/4 of a discount point. The inflation data Friday will be the most important economic data this week. Signs of stronger than expected inflation would not be good for mortgage interest rates. The Treasury auctions will also dominate trading. Stronger than normal foreign demand could bode well for the overall level of interest rates. Weaker than expected bids would likely result in interest rate increases. Economic Factors Economic Indicator Release Date Time Consensus Estimate Analysis Trade Data Tuesday, Jan. 12, 2010 $34.8 billion deficit Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates. 3-year Treasury Note Auction Tuesday, Jan. 12, 2010 None Important. $40 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. Fed "Beige Book" Wednesday, Jan 13, 2010 None Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates. 10-year Treasury Note Auction Wednesday, Jan 13, 2010 None Important. $21 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. Retail Sales Thursday, Jan. 14, 2010 Up 0.4% Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates. 30-year Treasury Bond Auction Thursday, Jan. 14, 2010 None Important. $13 billion of bonds will be auctioned. Strong demand may lead to lower mortgage rates. Consumer Price Index Friday, Jan. 15, 2010 Up 0.2%, Core up 0.1% Important. A measure of inflation at the consumer level. Weaker figures may lead to lower rates. Industrial Production Friday, Jan. 15, 2010 Up 0.6% Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates. Employment Results The December employment report came in relatively bond friendly. Unemployment came in at 10% as expected. However the payrolls component showed job losses of 85,000 compared to the 35,000 losses expected by analysts. The mortgage bond market had a generally positive reaction to the report but improvements in rates were tempered by concerns for some of the revised data from prior months. Revisions to the November figures showed a 4000-job increase as opposed to the original 11,000-job decrease.

WR Starkey Mortgage - A different kind of company...where people come first!

Ruth Vogt Business Development Manager (LMB100023827) 6025 South Quebec, Suite 110 Englewood, CO 80111  Work: 720-489-0712 Fax: 720-489-0273 Other: http://www.dora.state.co.us/real-estate/index.htm  rvogt@wrstarkey.com  www.MyLenderOfChoice.com

The other day my husband (who is in the same business) told me about a new loan application he got from an old acquaintance. I was shocked to hear she had found us after all this time, so I asked him how in the world she found us??? It wasn't just his answer that surprised me, but my initial reaction to his response.

Ready? She had left a message on our home phone recorder! I responded, "REALLY? She left a message on our home phone?"

"Yep, she looked us up in the phone book".

I was quite surprised.

Then laughed at myself! What has happened that I was so surprised that someone would find us using a phone book. Was it really that long ago that we used that as a major lead source?

Hope there are some of you that are laughing WITH me, and not AT me!

Mortgage Rate Indicators for Denver

We all know the law of gravity: what goes up must come down.

But here's the law of interest rates: what goes down will most likely go back up!

If you or your clients are trying to decide when is the right time to lock your interest rates, I suggest you keep a close eye on the mortgage rate indicators. And you don't have to be under contract to lock a rate. Call today for details!

Market Comment - Week of January 4th, 2010 Mortgage bond prices fell last week pushing mortgage interest rates higher. The bond market was choppy most of the week as thin trading conditions magnified movements. We started the week with rates heading higher Monday. Fortunately there was a bit of a rally Tuesday and Wednesday as the Treasury auctions were decent. Those gains were short-lived as the weekly jobless claims figure wasn't as bad as expected. The bond market closed early Thursday and was closed the entire day Friday. For the week interest rates rose by about 1/4 of a discount point. ISM Index data will set the tone for trading this week. The employment report will be the most important release but it doesn't arrive until Friday. This will be the first full week of trading this year. It will be interesting to see how traders react to the recent spike in rates following the various shortened trading sessions. Economic Factors Economic Indicator Release Date Time Consensus Estimate Analysis Construction Spending Monday, Jan. 4, 2010 Down 0.5% Low importance. An indication of economic strength. Weakness may lead to lower rates. ISM Index Monday, Jan. 4, 2010 54.0 Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates. Factory Orders Tuesday, Jan. 5, 2010 Up 0.5% Important. A measure of manufacturing sector strength. Weakness may lead to lower rates. ADP Employment Wednesday, Jan. 6, 2010 -75k Important. A measure of employment. A larger than expected decrease in jobs may bring lower rates. Employment Friday, Jan. 8, 2010 Unemp. @ 10%, Payrolls unchanged Very important. An increase in unemployment or a large decrease in payrolls may bring lower rates. The Year Ahead This year begins in a similar fashion to last year. Last year at this time 30 year fixed rate mortgage interest rates were historically low. Most pundits predicted little or no opportunities for additional refinancing. Mortgage interest rates did spike higher from time to time throughout the year but overall the Fed did an excellent job of keeping rates in check. Unfortunately now the Fed's $1.25 trillion mortgage backed securities (MBS) purchasing program is nearing the end and the future remains uncertain. The good news is that 30 year fixed rate mortgages remain low but once again future predictions are all over the board. What will occur in the future, economic recovery or additional weakness will continue to be debated. There is no certainty in predictions. Data can be used to support both sides of the debate. What we can be certain of is the fact that until the economy gains some stability, mortgage interest rates are likely to be volatile. Historically, mortgage interest rates seem to improve slowly. In contrast, when rates increase, it is often fast and furious. One negative day often erases a week of positive improvements. It is possible for mortgage interest rates to push lower considering the Fed still has a few hundred billion dollars of MBS purchasing left. However, we are in unprecedented times. The Fed has clearly signaled they want rates to remain low but also want to exit the market. The Fed isn't the only player in the mortgage bond market and there are many others buying and selling the securities. Remember that the Fed does not directly dictate that mortgage interest rates will be at a certain percentage. Rates are determined by the supply and demand for mortgage-backed securities. The Fed kept rates in check for 2009. The big unknown is how they will exit the market without causing major disturbances this year. While there have been signs of improvement in the housing sector, the last thing we need is higher rates. Without the Fed buying mortgage bonds rates may very well head considerably higher. Now is a great time to take advantage of favorable rates.

WR Starkey Mortgage - A different kind of company...where people come first!

Ruth Vogt Business Development Manager (LMB100023827) 6025 South Quebec, Suite 110 Englewood, CO 80111  Work: 720-489-0712 Fax: 720-489-0273 Other: http://www.dora.state.co.us/real-estate/index.htm  rvogt@wrstarkey.com  www.MyLenderOfChoice.com

Getting ready to sell your home in Castle Rock Colorado

Whew! You've made it through the holidays! Time to take down the decorations and put them away. But where are you going to put them? You've run out of storage space. Matter of fact, you're out of garage space, bedroom space, and every other kind of space! All signs you might be getting ready to sell your home!

Here's an excellent article from an east coast expert on things to do when you are getting ready to sell your home.

BUT the first step is to find a local real estate agent to determine if now really is the right time for you. The agents will then give you personalized tips on getting ready to sell your home.

Call us today for a list of experts in the Castle Rock area.

Ruth Vogt, Business Development Manager (LMB100023827) 720-489-0712 rvogt@wrstarkey.com www.MyLenderOfChoice.com 6025 South Quebec, Suite 110 Centennial, CO 80111
http://www.dora.state.co.us/real-estate/index.htm